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Tilman Ehrbeck: What SMEs Do (and Don't Do) for Jobs

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Globally, the G20 has prominently made small- and medium-enterprise (SME) support a priority of their development agenda, citing that SMEs account for 45 percent of employment and 33 percent of GDP in developing countries. However, how much do SMEs actually positively impact job creation? CGAP CEO Tilman Ehrbeck recently blogged on HuffingtonPost.com to clarify some potential misconceptions related to SMEs:

More than 60 percent of American SMEs are working in areas where they bring known solutions to known customer groups with little innovation or growth. This includes skilled craftsmen (e.g., plumbers and electricians), skilled professionals (e.g., lawyers, accountants) as well as real estate firms, restaurants, and small shops (e.g., gas station owners). A quick gut check against our own daily business interactions makes this list highly plausible. These types of SMEs do not create many new jobs. As far as job creation potential is concerned, what matters more than size is the age of a firm; younger ones are those that almost tautologically seem to have more growth potential.